Forget gold, buy-to-let, and Cash ISAs: I’d buy bargain FTSE 100 dividend shares

Bargain FTSE 100 dividend shares should be better way of generating income and capital growth than rivals such as gold, buy-to-let, and Cash ISAs.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are plenty of bargain FTSE 100 dividend shares after the stock market crash, but many companies have delayed or cancelled their shareholder payouts. The uncertainty surrounding the global economy is making it harder to generate a passive income from the FTSE 100 at the moment, but I don’t believe that will last.

Many investors may be tempted by alternative homes for their money, such as gold, buy-to-let property, and Cash ISAs. However, their long-term returns may be disappointing. Buying FTSE 100 bargain shares should still make your money work much harder over the longer run, helping you to get rich and retire early.

While some FTSE 100 companies have cut back on dividends, others are holding firm. These include oil giants BP and Royal Dutch Shell, as well as AstraZeneca, British American Tobacco, Diageo, GlaxoSmithKline, Tesco, Unilever, and Vodafone.

I’d buy bargain FTSE 100 shares

This means it is still possible to generate a worthwhile passive income from bargain FTSE 100 dividend blue-chips in 2020. Plus you should also benefit from rising shareholder payouts in the years ahead, and capital growth when share prices rise.

Many investors have piled into gold, but the precious metal doesn’t generate any income at all. You only make money when the price rises. With the gold price hitting a high of $1,731 an ounce, you could get caught out if the price retreats.

Cash ISAs will be hit hard by the Bank of England’s double base rate cut in March. Savings rates may now struggle to keep up with inflation. You can get higher yields from buy-to-let, but this is no longer a tax-efficient investment. It also requires a lot of expense and effort.

Right now, landlords may be negotiating payment holidays with tenants. It’s a faff. Especially if your tenants lose their jobs, when you may have uncomfortable decisions to make.

The income and growth potential of FTSE 100 dividend shares makes them a top long-term investment. Especially at today’s bargain prices. While the outlook is uncertain, share prices have always recovered from previous bear markets, as economic growth returned.

Dividend stocks should recover

The very best time to buy dividend shares is after a stock market crash, when you can find bargain stocks trading at far lower prices than before.

Choose your targets carefully, sticking to those with strong balance sheets, healthy cash generation, and minimal debt. Stock markets are likely to recover when today’s monetary and fiscal stimulus really starts working. This may allow companies to build profits and raise their dividends at a faster rate in future.

The key to reducing risk is to diversify across a range of bargain shares, and build a balanced income stream for the longer run.

Buying FTSE 100 dividend stocks may look like a risky move at the moment, but in the longer run, today’s bargains should still be your best way of generating passive income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Diageo and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »